10 Laws in China That Can Make or Break Your Business—Before You Sign Anything

Before you shake hands on that joint venture deal in Shanghai, ink a manufacturing agreement in Shenzhen, or hire your first employee in Beijing, there’s a harsh reality to face: China’s legal system operates by its own logic, timelines, and enforcement mechanisms. What looks like a standard contract clause in New York might be unenforceable in Guangzhou. What seems like routine data collection in London could trigger regulatory penalties in China. And what passes for normal competitive behavior in Sydney might violate Chinese anti-unfair competition rules.

The difference between business success and costly failure in China often comes down to understanding ten critical laws before you commit to anything. Whether you’re evaluating China market entry strategies or finalizing investment structures, these legal frameworks determine your success trajectory. These aren’t abstract legal theories—they’re the practical frameworks that determine whether your investment gets protected, your contracts get enforced, your data stays secure, and your operations remain compliant. Let’s examine each one and what you need to verify before signing on the dotted line.

1. Foreign Investment Law: Your Foundation or Your Fault Line

The Foreign Investment Law (FIL), which took effect in 2020, fundamentally restructured how foreign capital enters and operates in China. Unlike previous regulations that created separate legal categories for foreign-invested enterprises, the FIL introduced a unified framework built around one core principle: national treatment. In theory, foreign investors receive the same treatment as domestic Chinese investors—except where explicitly restricted.

But here’s what matters before you sign: the FIL’s protections only work if you understand its boundaries. China maintains a “negative list” of industries where foreign investment faces restrictions or outright prohibitions. These lists get updated, sometimes annually, and what was permissible last year might be restricted this year. Before finalizing any investment agreement, verify that your intended business activity doesn’t fall under restricted categories by consulting the China Negative List. In sectors like telecommunications, media, internet content, and certain financial services, foreign ownership caps still apply regardless of national treatment principles.

The FIL also requires formal registration of foreign investments and mandates adherence to national security provisions. These aren’t mere formalities. If your investment involves data processing, critical infrastructure, or technology transfer, expect heightened scrutiny during security reviews under FDI regulations. Companies have lost months of momentum—and sometimes entire deals—by failing to anticipate these review processes. Check whether your investment structure and industry sector trigger mandatory security reviews before you commit capital.

2. PRC Company Law: Governance Structures That Actually Matter

China’s Company Law, substantially amended in 2023 with changes taking effect in 2024, governs how companies organize themselves, allocate shareholder rights, and structure decision-making. For foreign investors, this law determines whether your governance rights written into contracts actually hold up under Chinese jurisdiction.

Here’s the practical issue: many foreign investors assume Western corporate governance principles translate directly into Chinese operations. They don’t. Chinese Company Law prescribes specific requirements for Articles of Association, shareholder meeting procedures, and board structures. Your joint venture agreement might promise you certain veto rights or information access, but if those rights aren’t properly embedded in the Articles of Association following Company Law requirements, they may prove unenforceable when disputes arise.

Before signing any equity agreement or joint venture arrangement, understand how legal structure choices affect your operational capacity and ensure three compliance points are met. First, verify that your Articles of Association align with current Company Law requirements, not outdated versions. The 2023 amendments introduced significant changes to capital contribution rules and shareholder liability that directly affect how companies structure investment terms. Second, establish clear documentary procedures for shareholder resolutions and board meetings. Chinese courts evaluate governance disputes based on formal records; verbal agreements and email exchanges carry far less weight than properly documented meeting minutes and resolutions. Third, confirm that your legal representative appointments follow prescribed processes. In China, the legal representative—not the CEO or chairman—holds significant authority and liability. Make sure you understand who holds this role and how it can be changed.

3. Cybersecurity Law and Personal Information Protection Law: Data Compliance That Can’t Wait

China’s Cybersecurity Law (CSL) and Personal Information Protection Law (PIPL) create overlapping compliance obligations that foreign businesses frequently underestimate until it’s too late. These laws don’t just regulate what data you can collect—they govern where you can store it, how you can transfer it, and what you must do to protect it.

The CSL, recently amended to take effect in 2026, targets critical information infrastructure operators and network operators broadly. If your business processes significant volumes of personal data or operates systems that could affect national security or public interest, you likely fall under CSL requirements. The PIPL, China’s comprehensive personal information protection law, introduces specific consent requirements, cross-border data transfer restrictions, and individual rights that mirror—but don’t exactly match—Western data protection frameworks like GDPR.

Here’s what breaks businesses: cross-border data transfer requirements. If you plan to transfer personal information or important data collected in China to servers or entities outside China, you must complete security assessments or obtain certifications before those transfers begin. Companies that build data infrastructure assuming they can freely move data between Chinese operations and overseas headquarters face costly retrofitting or, worse, enforcement actions that halt operations. Before signing contracts with Chinese partners or customers that involve data processing, verify your data architecture complies with localization and transfer requirements. Foreign businesses must understand these data and privacy compliance obligations before operations begin. Implement formal data governance programs that classify data according to Chinese regulatory categories, establish clear processing purposes tied to specific consent mechanisms, and create documented procedures for handling cross-border transfer scenarios.

4. Data Security Law: The Overlooked Regulation That Amplifies Risk

While foreign businesses focus heavily on the PIPL, many overlook the Data Security Law (DSL), which took effect in 2021. The DSL doesn’t replace the PIPL—it adds another regulatory layer focused specifically on data security classification, processing activities, and cross-border provision of data.

The DSL establishes a data classification system requiring businesses to categorize data by importance and implement corresponding protection measures. It introduces legal obligations for data processors, particularly those handling “important data“—a term that regulators define contextually based on industry, volume, and potential national security implications. The law also empowers authorities to conduct security assessments for data processing activities and cross-border data provision.

What matters before you sign: if your business model involves collecting Chinese customer data, supply chain information, or operational data, you need a DSL-compliant data risk assessment before you begin operations. This assessment identifies what constitutes important data in your specific context and what security measures you must implement. Companies launching operations without these assessments often discover compliance gaps only after authorities conduct investigations or competitors file complaints. Integrate DSL requirements into your data governance plan alongside PIPL compliance, ensuring you document data classifications, implement appropriate technical safeguards, and establish procedures for responding to regulatory data security reviews.

5. Labour Contract Law: Employment Relationships That Define Your Liability

China’s Labour Contract Law creates specific formalities for employer-employee relationships that differ substantially from employment-at-will systems common in some Western jurisdictions. The law mandates written employment contracts, restricts termination scenarios, requires severance in most termination situations, and limits probationary periods and fixed-term contract renewals.

Foreign businesses frequently stumble over these requirements when hiring their first Chinese employees. Hiring someone without a written contract within one month creates additional liability. Attempting to terminate employees without statutory cause or proper procedure can trigger labor arbitration claims and mandatory reinstatement orders. Misclassifying workers as independent contractors rather than employees exposes companies to back payments for social insurance and housing funds.

Before signing any agreements to establish operations in China, map out your HR compliance framework. Draft standardized employment contract templates that include all required terms under the Labour Contract Law: job descriptions, compensation structures, working hours, social insurance arrangements, and termination provisions. Align your HR processes with legal timelines—probationary periods can’t exceed certain durations based on contract length, and terminations require advance notice or payment in lieu except in specific circumstances. If your business model involves flexible staffing, understand the strict limits on dispatched labor arrangements and non-compete clauses. Chinese courts scrutinize non-compete provisions carefully and require employers to pay monthly compensation during non-compete periods—provisions that many foreign employers draft without understanding enforceability requirements. Learn more about Labor Contract Law requirements for foreign employers.

6. Intellectual Property Law: Registration Determines Protection

China operates a registration-based intellectual property system, meaning the first to register often wins rights disputes, regardless of who used the mark or created the design first. This fundamental principle catches foreign businesses off guard repeatedly. Companies that build brand recognition in Western markets then enter China discover local entities have already registered identical or similar trademarks. By the time they seek protection, they face costly buyouts or forced rebranding.

China’s IP legal framework covers trademarks, patents, copyrights, and trade secrets through various laws and regulations. Recent amendments have strengthened IP protections and increased damage awards for infringement, but protection still depends on proactive registration. Before signing any agreements to manufacture, distribute, or market products in China, complete comprehensive IP registration. File trademark applications for your brand names, product names, and logos across all relevant classifications. If your business involves technology or inventions, file patent applications in China separately from international applications—China requires domestic filing and operates a first-to-file patent system. Copyright registration, while automatic upon creation, benefits from formal registration that creates evidentiary advantages in enforcement actions.

Beyond registration, audit your contractual relationships for IP risks. Manufacturing agreements must clearly address ownership of tooling, molds, and designs. Technology transfer agreements require careful navigation of Chinese regulations that restrict certain terms and mandate specific confidentiality provisions. Licensing agreements should account for Chinese enforcement mechanisms and include clear territorial restrictions. Companies that assume IP protections travel automatically across borders often discover their Chinese partners have legal grounds to use their technology, brands, or designs in ways never intended. Explore comprehensive IP protection strategies for China operations.

7. Anti-Unfair Competition Law: Marketing and Competition Rules That Differ

The Anti-Unfair Competition Law (AUCL) regulates competitive behavior, commercial bribery, false advertising, trade secret misappropriation, and internet-based unfair competition. Recent amendments have expanded the law’s scope to address new business models, particularly e-commerce and platform-based competition.

Foreign businesses entering China often overlook AUCL compliance, focusing instead on product quality, pricing, and market entry strategies. But the AUCL defines prohibited competitive practices that differ from Western antitrust or unfair competition concepts. The law restricts certain promotional practices that might be permissible elsewhere, limits commercial bribery broadly (including hospitality and entertainment that could influence transactions), and prohibits confusion-causing behavior regarding another entity’s trademarks, packaging, or promotional materials.

What breaks companies: marketing campaigns designed for Western audiences that violate Chinese standards for truthful advertising and fair competition. Before launching marketing initiatives, audit your promotional practices against AUCL requirements to avoid violations that trigger significant enforcement penalties. Comparative advertising faces stricter limits than in some Western markets. Claims of superiority or uniqueness require substantiation that meets Chinese evidentiary standards. Prize promotions and loyalty programs must comply with specific disclosure and cap requirements. If your competitive strategy involves aggressive pricing, platform incentives, or customer acquisition tactics, verify these approaches don’t constitute unfair competition under Chinese interpretation.

8. Contract Law: Governance and Enforcement That Requires Local Logic

China’s Contract Law establishes the framework for contractual relationships, defining formation requirements, validity conditions, performance obligations, and breach remedies. While the law recognizes freedom of contract principles, it imposes mandatory provisions that override contractual terms in certain circumstances and interprets ambiguous terms according to Chinese legal principles.

Foreign businesses frequently draft contracts using Western legal templates without adapting to Chinese Contract Law requirements. This creates enforceability problems when disputes arise. Chinese courts interpret contracts according to Chinese legal principles, not common law doctrines. Concepts like consideration, which underpin common law contracts, don’t exist in Chinese contract interpretation. Force majeure provisions that seem clear in English contracts require specific language to align with Chinese judicial interpretation of legitimate excuses for non-performance.

Before signing any significant business agreement governed by Chinese law, engage legal review that addresses Chinese Contract Law specifics. Standardize contract templates that incorporate mandatory provisions required for specific contract types—technology transfer contracts, joint venture agreements, and employment contracts all face specific legal requirements beyond general Contract Law principles. Build termination provisions that account for Chinese courts’ reluctance to enforce penalty clauses that seem disproportionate to actual damages. Structure dispute resolution clauses carefully, understanding that arbitration often provides advantages over litigation for foreign parties, but only if arbitration clauses are drafted with precision that meets Chinese validity requirements.

9. Export Control and Foreign Investment Security Review: Hidden Veto Points

China’s export control regime and foreign investment security review mechanisms create potential veto points that can block transactions or operations even after contracts are signed. The Export Control Law, effective since 2020, regulates exports of dual-use items, technologies, and services that could affect national security. Foreign investment security reviews apply to investments in sensitive sectors or those that could affect national security.

These mechanisms operate differently from Western counterparts. Chinese authorities have broad discretion to determine what constitutes controlled items or which investments require security review. Companies discover too late that their intended business activities trigger review requirements that delay or prevent operations. Before finalizing agreements involving technology transfer, data access, or investments in regulated sectors, conduct preliminary assessments of whether your activities might trigger export control restrictions or security review requirements. Build contractual contingencies that account for potential regulatory approvals needed before closing.

10. Tax Law and Transfer Pricing: Compliance That Compounds

China’s tax system includes corporate income tax, value-added tax, individual income tax, and various other levies, along with transfer pricing rules that scrutinize transactions between related parties. Tax compliance creates ongoing obligations that affect profitability and legal liability for company officers.

Foreign businesses often structure operations without fully accounting for Chinese tax implications. Transfer pricing between Chinese subsidiaries and foreign parent companies faces intensive scrutiny. Tax authorities regularly challenge pricing that appears to shift profits outside China, requiring companies to maintain extensive documentation justifying pricing decisions. Permanent establishment rules may create Chinese tax obligations earlier than foreign businesses expect.

Before signing agreements to establish operations, engage tax advisors who can model your structure’s implications under Chinese tax law. Document transfer pricing policies that align with China’s transfer pricing regulations based on arm’s-length principles. Understand tax incentives available for your industry sector and location—China offers preferential tax treatment for certain encouraged industries and geographic zones, but accessing these benefits requires upfront planning and proper registration.

Navigate With Confidence Through Expert Support

These ten laws create an interconnected compliance framework that foreign businesses must navigate before commitments become binding. Understanding these requirements is crucial whether you’re asking is China good for business or already planning market entry. The complexity isn’t insurmountable, but it requires specialized knowledge and proactive planning. Companies that enter China understanding these requirements position themselves for sustainable success. Those that ignore them face costly corrections, regulatory actions, and strategic setbacks.

Modern legal technology offers powerful tools for navigating this landscape. iTerms, built on FaDaDa’s decade of experience serving over 100,000 global clients in China’s legal technology market, combines AI-powered intelligence with certified legal expertise specifically designed for international users facing China-related decisions. Whether you’re drafting your first Chinese contract, evaluating data compliance requirements, or structuring employment relationships, iTerms provides scenario-based guidance that helps you understand China-specific legal logic and risk before problems occur.

The key to business success in China isn’t avoiding its legal system—it’s understanding how to work within it effectively. Employ local legal advisors who understand both Chinese law and international business contexts. For comprehensive guidance, explore our AI-powered legal solutions designed specifically for China business operations. Utilize advanced AI-powered tools that bridge linguistic and conceptual gaps between Western and Chinese legal frameworks. And above all, treat legal compliance not as an afterthought but as a core component of your China strategy from day one. The laws that govern your business in China are already in place. The only question is whether you’ll master them before you sign—or discover their consequences after it’s too late.